dwot (32.99)

Abundance of Minerals

9

Seeing how I get putting in the pictures wrong every time I just put a link to my latest blog...

I have post where I looked at the relative abundance of minerals and an estimate of their speculative value should they all be mined. I think people need to be cautious about investments in commodities when prices are strong and I hope this post shows a little bit or why, and better think through how you should weight the value of your investment.

* Aluminum's spot price in 1960 was $575/lb. This reflects the fact that the process to extract the base metal from its principal ore, bauxite, had not yet been invented. The process requires a great deal of energy (natural gas, oil), a dedicated smelting facility, and a chlor-alkali source - not more than a few dozen pennies worth per lb., to be sure, but the point is that without these inputs you simply do not get aluminum at any price. Because of this and because of the relative non-rarity of bauxite ore, aluminum production is "tethered" to the facilities that are in place to produce it - a new bauxite strike, if anyone was silly enough to speak of such a thing, will not make any difference - and so the supply and hence cost of the aluminum will be somewhat predictable. Contrast this to the prehistoric metals - iron, lead, and copper - which are easily smelted from their ores; native copper is still found in places like Arizona and a big strike can influence prices (as can the skyrocketing demand we've seen lately.)

* Iridium and rhodium are quite interesting elements and their useful properties can be attributed to their partially filled d orbitals, like all the transition metals. Using them to alloy in steel or other metals for strength or corrosion resistance is a very limited application for these metals, and that's because there's not a huge improvement between chromium steel, chromium-molybdenum steel, and then the iridium and rhodium-alloyed steels that are used in things like high-speed water-cooled industrial cutting tools. Iridium also has a number of applications in optics because of its delightful regularity in forming vapor-deposition crystals, and I believe iridium crystals find applications elsewhere in technology too. In general though I do not look at these as bulk metals but rather inputs for very specialized, high-tech applications owing to their physical and chemical properties. That means to me that the ebb and flow of technological advances can have a great impact on the demand for these metals.

* Gold is extremely bizarre. The Time-Life Science library book, Matter, which sparked my interest in chemistry, started off the entry on gold by saying "Man's lust for gold has been a delusion, for he has pursued little more than a yellow gleam.. it has limited applications in electrical circuitry, jewelry, and dental work." I do not know how to value gold accurately, but I do know that I wouldn't even include it in your fantastic article because people have behaved irrationally about gold from the dawn of time. When I think of Fort Knox, all that gold sitting there where no one can use it or even look at it, and then remember that people die every day going down into holes in the earth to look for this stuff and extract it at a cost of $250/troy oz., so that it can then be stuffed into another vault, it boggles my mind.

I think I would rather read one of your articles than do just about anything, I get such a kick out of them. Please keep writing!

interesting thing about rhodium (see my pitch for gm longs) is that when i worked at gm in the 90s we would spend a ton of money on palladium, platinum and rhodium for catalytic converters... these metals when baked into washcoat and coated onto a substrate magically turn that yucky exhaust into clean exhaust... well clean enough for the epa... anyways, the technology was so raw that some converters like on ford pick ups had 500 dollars of precious metals stuffed in them... through technology we were able to reduce the metal requirements substantially and when i left a full sized pick up would cost 40 dollars in precious metals.... interestingly, because gm was the largest automaker and we also bought pgms for fiat, saab, holden and opel... we actually controlled the market based on our buys..... a converter application requires either a blend of rhodium / palladium or platinum... so if platinum prices went through the sky, we would switch to the rhodium / palladium blend... but the cost benefit had to work because of the re-engineering.... long story short, when i see rhodium at sky high prices it makes me want to go long platinum

Well, how flattering, thanks ikkyu2. I am glad that some people like to read them. I like writing and through the process I also pick up things I did not know, but it sure takes me a long time.

Techological advances is why metals prices have essentially declined since they were discovered. I think technological advances that reduce price do not make as much of a difference now, ie, the advances tend to be marginal, and so they can not hide inflation the way they used to. There could be a big advance and then metals would have downward pressure again.

Gold is weird. I included it because I wanted to have a better perspective on how some of the arguments for it stand up. I suppose it does behave like a universal currency of sorts which is useful if your currency is devaluing relative to others. Also, some are treating some of the metals as both precious and industrial, so for me it was useful to have a perspective on relative valuation.

Floridabuilder, when you consider that platinum is up around 3-fold compared to rhodium being 16-fold, I can really see what you mean...

I do wonder if applications for rhodium have increased more than applications for say, platinum.

That Noront deposit has me wondering how big it is and how many places drill results such as theirs might be found. A three meter stretch had over 40g/ton of platinum, not to mention the 8.7% nickel, 10.9% copper, 9 g/t gold and silver, 14 g/ton palladium. That's well over $5k of metal values per ton. It is pure profit. 68 meters average $2300 of metal values per ton. Metal values could go to 1/3rd their current price and this one would still be highly profitable...

Hmmm... 120 odd million shares at $3.80... A half billion market cap... Still, 5 years before it gets a mine built...

Very interesting, dwot. I follow aluminum quite closely (was an automotive parts supplier metals buyer) and think your comments were right on. The aluminum processing company which can come up with efficiency improvements will be able to write their own ticket. Watch for companies that can cast clad metals as opposed to the hot roll bond method.

I had a little fun with the numbers you presented at the beginning of your blog that there is ~$80 quintillion of Al in the first km of the crust. Well my house is on 100 x 200 sq ft lot so going 1 km down, with 8.2% abundance of Al @ $1.09/lbs that means on my property there is nearly $1 billion of Aluminum. Sweet! I won't make it into the Forbes 400 but still not bad. And floridabuilder keeps saying land is worthless :-) This puppy is going on the market tomorrow, heck I'll throw in the house for free. If that doesn't work I'll get an IPO to buy some shovels and start digging. Yatta!

"Not all minerals in the ground can be mined, but if you assumed only 1% of each mineral, or even 1/10th of 1% is recoverable, the numbers are still enormous".

I think this is where your flaw is. I doubt if anywhere close to .001 is economically mineable. There may be a billion dollars worth of minerals in the ground under my 2 acre lot, but, if so, none of them are in concentrations great enough to be worth bothering. Too bad for me!

Foolish Chemist, I love the way you did that. I did go down 1 km. Seriously, I saw one company that drilled so far down I wanted to write post "drilling to China." The Bingham Canyon mine has mined about 3/4 of a mile down.

Reddingrunner, I think that is a very valid point. But then, they are starting to work on mining from deposits in the ocean, which I excluded... I also saw something about working on technology to extract from ocean water...

And probably there is also restraints on it for environmental reasons.

It is probably the amount and quality of known reserves of a metal of interest that investors should have some idea about.

Also, uranium is in its infancy in terms of exploration. People have been looking for copper for centuries whereas uranium has only been mined less than 100 years, and only in any real quantity since after WWII.

i like you very much so dont take this personally, but I found the post ridiculous. we all know pounds in the ground doesn't mean a thing. an oil well isn't dry when there is no oil left, but instead when the oil is no longer economically recoverable. so technically and oil well can be half full yet empty. the same applies to mining.

Everywhere I look people are grossly overvaluing equities based on pounds in the ground and today's prices. Investors are putting a lot of value on what's in the ground and the potential they see based on today's prices and prices even getting stronger.

The point is that there is an enormous amount of economically feasible reserves based on today's prices. They can't all build mines with the expectation that prices will remain strong, yet that is how investors are valuing these equities.